Amity Research Center –Chennai

Case Study Serial No: CHE/2010/06

Kraft Foods' Acquisition of Cadbury: A

Case study Title:
Strategy to Become a Global Leader in Food and
Confectionery
Domain: Business Strategy

Author: Prof. S. Bhaskaran, Head, Amity Research Center –Chennai

Abstract

Kraft Foods US, a top US confectionery maker, had bought over Cadbury UK, another
equally strong player in the confectionery market, for a consideration of $19.6 billion
to become a major leader in the confectionery market. Cadbury had agreed for 840
pence per share which would give them a total valuation of $19 billion. Media
reported that Cadbury slipped into US giant Kraft Foods and the British Prime Minister
committed that the jobs in UK could be protected. It was estimated that Cadbury
employees numbered more than 45000 worldwide. It was expected, Kraft Cadbury
combine would generate large cost savings, enabling Kraft to become a global
market leader. The combine would also generate annual sales of more than $ 50
billion. The market reaction was mixed especially from UK where the fear of job loss
came up and cultural reaction was that the country’s honour namely Cadbury’s
brand, had been given to US. Kraft Foods, having established a good market in
Europe and US hoped to gain entry into developing countries like India and Brazil
where Cadbury had a strong foothold and these markets were considered to be
growing at the rate of 20% every year. Kraft- Cadbury combine aimed to capture
global leadership which was occupied by Nestle (in 2009). It remained to be seen how
Kraft Foods would encash on the well established Cadbury’s markets in developing
countries and reach the top slot in the confectionery market overtaking Nestle.

Pedagogical Objectives
The case study helps to understand and analyse:

• The global food and confectionery markets and role of major players like
Nestle, Cadbury and Kraft Foods
• The strategies adopted by Kraft Foods in acquisition and enlarging the market
share
• The strength and brand value of Cadbury built over 150 years
• The synergies of Kraft Foods and Cadbury combine
• The challenges from Nestle to be met by Kraft in reaching the top slot in the
global market.

Case Study

1
“Owning Cadbury has made Kraft the biggest confectioner in the world with a
footprint in developing markets such as India where it was weak”.1
- Irene Rosenfeld, Chief Executive, Kraft Foods

Kraft Foods was one of the major US confectionery manufacturers with net revenue of
$42 billion and operating in 150 countries as of 2008.2 It was founded 1903 as a
cheese company by James L. Kraft3 and over the years established fine brands like
Milka4, Toblerone5, Jacobs6, Oscar Mayer7 and Oreo8. Even though Kraft was able to
capture US and European markets, it was the second largest food company in the
world9 and Nestle10, Switzerland continued to occupy the premier position with its
brands firmly established not only in developed countries but also in developing
countries. Nestle had reported a net profit of $9.55 billion with an annual turnover of
$99 billion in 2009.11 Next in the race for second position was Cadbury, UK with its
popular brands like Dairy Milk bars, Roses chocolates, Trident12 gum and Halls13 cough
drops, built over 150 years not only in UK and developed countries but also firmly
established its presence in the developing countries like India, Mexico and Brazil for
over 50 years. Cadbury’s revenues in 2008 stood at £5.4billion. 14 Kraft Foods US with
an ambition to reach the top slot in the global confectionery market made a bid for
$10 billion to acquire a 100% stake in Cadbury at the end of 2009. The bid was
rejected outright as the market value of the share was more than £ 7per share and
Kraft Foods had to reconsider the valuation process of Cadbury and made a revised
offer of around $ 19.6 billion in early 2010 over which the shareholders of Cadbury
numbering over 90% consented to the acquisition. Even though initial reaction in UK
was hostile both politically and culturally, the deal would be completed with a
clearance from the regulators of US and UK. Kraft Foods would be having the

1
“After Cadbury, Kraft to have presence in India”,
http://www.thehindubusinessline.com/blnus/10071821.htm, February 7th 2010
2
“Kraft Foods Reports Strong 2008”, http://www.flex-news-
food.com/files/kraft.results.04.02.09.pdf, February 4th 2009
3
“Kraft Foods Inc. – Company history”, http://www.fundinguniverse.com/company-
histories/Kraft-Foods-Inc-Company-History.html, 2002
4
Is Kraft Foods' best-selling brand of milk chocolate. It is sold in bar form, in holiday shapes,
and in a variety of specialty forms.
5
Is a chocolate bar well known for its distinctive packaging, its prism shape and its ubiquity
in airport duty-free shops.
6
Is a brand of coffee that traces its beginnings to 1895 in Germany by Iohann Jacobs and is
today marketed in Europe by Kraft Foods
7
Is an American meat and cold cut production company known for its hot dogs, bologna,
bacon and Lunchables products.
8
Is a trademark for a popular sandwich cookie currently manufactured by the Nabisco
Division of Kraft Foods.
9
“Kraft Foods Reports Strong 2008”, Op.cit.
10
Is a multinational packaged foods company founded and headquartered in Vevey,
Switzerland.
11
“Nestle makes $9.55 billion full-year profit”,
http://economictimes.indiatimes.com/news/international-business/Nestle-makes-955-bn-full-
year-profit/articleshow/5592481.cms, February 19th 2010
12
Is a brand of sugarless chewing gum introduced by Cadbury in UK in January 2007.
13
First launched in India in 1968 & soon established itself as a ‘therapeutic’ candy competing
in the cough lozenge market.
14
“Cadbury Annual Report & Accounts 2008”,
http://cadburyar2008.production.investis.com/~/media/Files/C/cadbury-ar-
2008/pdf/cadbury_ra_13mb_compressed.ashx, February 25th 2009
2
advantage of the strength of Cadbury in the developing nations along with its
established brands. It remained to be seen how far the combine of Kraft Foods and
Cadbury would give competitive leverage to gain market share and compete with the
leading player Nestle.

Kraft Food: Evolution and Growth

Kraft Foods Inc., the second largest food company in the world, had brands spread
over five consumer sectors – snacks, beverages, cheese, grocery and convenient
meals. (Exhibit I). Kraft Foods had a strong presence worldwide and operated in150
countries as of 2008. The company had evolved from a cheese company, started by
James L. Kraft in 1903. (Annexure I). James L. Kraft had started his cheese business
to relieve the grocers from travelling daily to procure cheese. The merger of Kraft –
Phenix15 and National Dairy Products Corporation16 in 1930 led to the further growth
of Kraft. New brands such as Miracle Whip17 salad dressing, Velveeta pasteurised
process cheese spread, were launched and turned to be successful. Innovative
advertising strategy followed by Kraft was another driving force for Kraft’s success.
The company was renamed as Kraft Foods Company in 1945 and during the post war
period Kraft Foods continued with its new product launches and innovative
advertising.18

Exhibit I
Kraft Foods Brand Span Five Consumer Sectors
Food Segment : Products
• Snacks : Primarily biscuits (cookies and crackers), salted snacks
and chocolate confectionery
• Beverages : Primarily coffee, packaged juice drinks and powdered beverages
• Cheese : Primarily natural, process and cream cheeses
• Grocery : Primarily spoonable, and pourable dressings, condiments
and desserts
• Convenient Meals: Primarliy frozen pizza, packaged dinners, lunch
combinations and processed meats
Source: “Form 10-K: Kraft Foods Inc –KFT”,
http://www.kraftfoodscompany.com/Investor/sec-filings-annual-
report/annual_reports.aspx, February 25th 2010

During the early 80s, Kraft Foods had merged with Dart Industries Inc., to diversify
their business. Dart Industries Inc, was a company with varied business engaged in
pharma drugs, electric appliances, plastics, glass and land development. However,
the merger was not successful as expected and was dissolved in a span of six years.
Since demerger, Kraft Foods continued its focus on food industry and used its
successful strategy of innovative product launch and advertising. In 1988, Philip
Morris Companies Inc, a tobacco giant and aggressive marketer bought Kraft Foods
for a consideration of $12.9 billion. Prior to Kraft’s acquisition, Philip Morris had

15
Cheese Company, the producer of Philadelphia cream cheese
16
Makers of Breyers ice cream and Breakstone's cottage cheese and sour cream
17
Is a salad dressing and sandwich spread manufactured by Kraft Foods. It is often used as
an alternative to mayonnaise in recipes, although it is sweeter and has additional spices.
18
“Cadbury Annual Report & Accounts 2008”, Op.cit.
3
acquired General Foods in 1985 for $5.6 billion. General Foods was a food giant who
had built huge multinational and multiproduct corporation through acquisitions of
smaller food companies.19 In 1989, Philip Morris had combined Kraft and General
Foods under the name Kraft General Foods, Inc. Post merger, Kraft General Foods was
the largest food marketer in US and it further acquired few other companies such as
Jacobs Suchard20. The merger of General Foods and Kraft had internal problems.
Though, the company had a growth rate of 20% for two years (1989 – 1990) post
merger, it faced difficulties due to large management. The response to consumers
demand was slow and the growth rate of the company was also low. Hence, the
company resorted to several restructuring activities like elimination of products that
lagged sales, job cuts and closure of few plants worldwide but Coffee and Post cereal
units of Kraft General Foods were successful. In 1993 it had acquired cold cereal
business of Nabisco Holdings Corp21 and added shredded wheat products to its
portfolio.22

In spite of various restructuring activities, Kraft General Foods’ financial results were
not rosy. In early 1995, the three units, Kraft USA, General Foods USA and Kraft
General Foods Canada were merged into one organisation under the name ‘Kraft
Foods, Inc’. and Kraft General Foods International was renamed as Kraft Foods
International. The company disposed off its bakery division in 1995.23 A successful
product launch in the late 90s was DiGiorno Rising Crust pizza24. The company started
reviving during the late 90s and it had acquired the license for the Taco Bell line of
Mexican grocery products. It further entered into an agreement with Starbucks 25 to
market and distribute their whole bean and ground coffee. In early 2000, Philip Morris
acquired Nabisco Group Holding Corp, integrated their operations with Kraft Foods,
Inc and renamed it as Kraft Foods Inc. 26 To reduce the debt incurred through this
acquisition, Philip Morris had sold 16.1% stake to the public and the company raised a
capital of $8.68 billion. Kraft Foods had divested few of its brands such as Farley’s
and Sathers27 confectionery brands and Yemina28 and Vesta29 brands of its Mexican
pasta business in late 2001 in order to maintain a powerful brand portfolio.30 In March
2007, Philip Morris had spun off Kraft Foods enabling Kraft to become an independent
public limited company.31
In July 2007 Kraft Foods acquired global business of Group Dannone which included
leading biscuit brands such as Lefevre Utile (LU)32, TUC33 and Prince34.35 Post
acquisition Kraft became the world’s leading biscuit company and strengthened its
19
“Cadbury Annual Report & Accounts 2008”, Op.cit.
20
A Leading European maker of coffee and confectionery products.
21
The principal activity of the Group is manufacturing and marketing of cookies and crackers.
22
“Kraft Foods Inc. – Company history”, Op.cit.
23
Ibid.
24
An uncooked flat crust that rises when baked
25
Is an international coffee and coffeehouse chain based in Seattle, Washington, United
States.
26
“Kraft Foods Inc. – Company history”, Op.cit.
27
Was created as an umbrella to roll-up many small companies, brands and products under a
common management team. Catterton Partners formed the Farley's & Sathers Candy
Company in 2002 as a vehicle for the purchase of some of the former Farley Foods Company
and Sathers Candy Company assets and brands from Kraft.
28
Is a leading premium pasta brand in Mexico.
29
Is a mainstream-priced brand.
30
“Kraft Foods Inc. – Company history”, Op.cit.
31
“History”, http://www.kraftfoodscompany.com/About/history/index.aspx
4
business growth and expansion. In November 2007, Kraft Foods sold off its Post
cereal business to Ralcorp Holdings Inc., a major private label maker of cereals and
frozen foods, for a consideration $2.6billon.36

Kraft Foods had become a leading food company after a series of acquisitions and
divesture in its history. Over the years the company had learnt that food business
was very successful and innovative strategies had helped company’s growth. In order
to have a long term sustainable growth the company had formulated a three year
plan in 2006 with focus on revival of top line growth in 2007, growth at top and
bottom lines of the company in 2008 and build profit margins and market share in
2009.37 Kraft Foods believed that strategies such as reframing brand categories to
enhance customer satisfaction, exploiting new sales avenues and offering low cost
products at premium quality would augment the revenue of the company and
position it on the top slot.

Kraft Foods had focused upon its plan to attain a long term and sustainable growth
since 2007. As planned earlier it worked on three metrics and augmented its
operating income margin and organic revenue growth. (Exhibit II). In addition, Kraft
Foods was able to improve its brand equity, deliver high quality earnings growth,
generate strong free cash flow, progress in all its operations worldwide, and improve
its margins despite reinvesting for future growth.38

Exhibit II
Kraft Foods Growth (2006 – 2009)

32
Lefevre Utile, better known in North America by the initials LU, is a manufacturer brand of
French biscuits, emblematic of the city of Nantes.
33
Is a brand of snack biscuit available in Europe and North America.
34
Prince biscuits are crisp, delicious cookies available in more than eight countries, including
Algeria, Austria, Belgium, China, France, Germany, Netherlands and Spain.
35
“Kraft Completes Acquisition of Groupe Danone's Global Biscuit Business”, http://www.flex-
news-food.com/pages/12745/Danone/Kraft/kraft-completes-acquisition-groupe-danones-
global-biscuit-business.html, November 30th 2007
36
Andrejczak, Matt, “Ralcorp to buy Kraft's Post cereal business”,
http://www.marketwatch.com/story/kraft-deals-post-cereal-business-to-ralcorp, November
15th 2007
37
“Kraft Foods – Cagny Conference”, http://phx.corporate-ir.net/External.File?
item=UGFyZW50SUQ9MzE3ODR8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1 , February 16th 2010
38
Ibid.
5
Source: “Kraft Foods – Cagny Conference”, http://phx.corporate-
ir.net/External.File?
item=UGFyZW50SUQ9MzE3ODR8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1, February 16th
2010

Launch of innovative products was another driving factor for Kraft Foods to success.
Kraft Foods had adopted the concept of ‘open innovation’. The company believed that
no company could be a leading innovator without partnership with external parties.
Kraft Foods had worked with external people to develop new products and launch
them in the market. This had helped the company to reduce its Research and
Development (R&D) costs and also speed up its development of new products.

After a successful turnaround in a span of three years (2007- 2009) Kraft Foods
wanted to expand their base and become a global leading food company. In this
backdrop, Kraft Foods viewed Cadbury, a leading UK based Confectionery Company,
as a route to enter the developing markets and increase their market share.
According to Irene Rosenfeld, Chief Executive of Kraft Foods, “The US group’s
integration of Cadbury was proceeding as planned and would transform the company
into “the global leader in sweets and snacks”.”39 Kraft Foods had successfully
finalised the deal to acquire Cadbury for $19.6 billion in early 2010.40

Cadbury: An Overview

39
Farrell Greg, “Emerging markets lift Kraft sales”, http://www.ft.com/cms/s/161021a4-1afa-
11df-88fa-00144feab49a,dwp_uuid=da5b2be8-9c6b-11de-ab58-
00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs
%2F0%2F161021a4-1afa-11df-88fa-00144feab49a%2Cdwp_uuid%3Dda5b2be8-9c6b-11de-
ab58-00144feabdc0.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Findepth%2Fcadbury-
kraft , February 16th 2010
40
Sen Sudeshna, “Kraft wins over Cadbury with $19.6 bn offer”,
http://economictimes.indiatimes.com/news/news-by-industry/cons-products/food/Kraft-wins-
over-Cadbury-with-196-bn-offer/articleshow/5478453.cms, January 20th 2010
6
Cadbury, world’s second largest confectionery company had made a long journey
since it was started in 1824 by John Cadbury. (Annexure II). The founder had
started the company to sell coffee, tea, drinking chocolate and cocoa in a small shop
at Birmingham as an alternative to alcohol. 41 Due to sale of high quality products, the
business expanded and John Cadbury started manufacturing cocoa and chocolate in
1831 at a rented warehouse.42 Subsequently the company was selling 11 kinds of
cocoa and 16 kinds of drinking chocolate in 1842 and further became one of the
manufacturers of chocolate and cocoa to Queen Victoria in 1854. John Cadbury’s sons
took over the business and launched a product “Cadbury Cocoa Essence” during
1860s. This product turned to be a major hit for Cadbury and it served as a basis for
their chocolate business. In 1873 the company stopped their tea business to focus on
the chocolate business which was very successful. 43

The Cadbury produced different varieties of chocolates and with their first export
order from Australia in 1881 the company prospered”.44 (Annexure III). In 1897, the
first milk chocolate was produced. In 1905, one of the Cadbury’s popular products,
Dairy Milk was launched.45 In 1919, Cadbury merged with JS Fry & Sons, a market
leader in chocolate, and integrated brands such as Fry's Chocolate Cream and Fry's
Turkish Delight which had been in existence for more than 90 years. 46 During this
period, the other brands that pushed Cadbury to the premier position in chocolate
manufacturing were Cadbury’s Milk Tray and Roses.47

As Cadbury started to prosper in the overseas market, the chocolate manufacturing

process was interrupted during the Second World War. Chocolate was then
considered important for the armed forces and chocolate manufacturing was brought
under the control of the government. Later in 1949 rationing of chocolate ended and
the normal production process was started. Cadbury resumed its operations,
improvised productions with new technologies and launched new products. Over the
years, Cadbury expanded rapidly and in 1969, it merged with Schweppes48 to foray
into the beverages market under the name Cadbury Schweppes Plc. 49The Cadbury
Schweppes became a leader in the confectionery and beverages market both in UK
and abroad. The company acquired chewing gum brand Trident, Sunkist50, Canada

41
“History of Cadbury”, http://www.englishteastore.com/cadbury-history.html
42
“Timeline: Cadbury's long history”,
http://news.bbc.co.uk/2/hi/uk_news/england/8467489.stm,January 19th 2010
43
“History Of Cadbury”, Op.cit.
44
“Cadbury History”, http://www.birminghamuk.com/cadburyhistory.htm
45
“History Of Cadbury”, Op.cit.
46
“Cadbury History”, Op.cit.
47
Ibid.
48
Was a well-known British brand that manufactured carbonated mineral water and soft
drinks
49
Mason Rowena, “Cadbury: a history of a chocolate maker with its heart in Birmingham”,
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/6149112/Cadbury-a-
history-of-a-chocolate-maker-with-its-heart-in-Birmingham.html, September 7th 2009
50
Is a brand of orange- and lemonade-flavored soft drink launched in 1979.
7
Dry51 and Typhoo Tea52. By this time, the company had manufacturing operations
worldwide and Cadbury had become a household name in many countries.53

Nearly after four decades, in 2007, Cadbury Schweppes wanted to separate its
confectionery and beverage business. The company was demerged in May 2008 and
Cadbury Plc was the new company that looked after the confectionery business and
Dr Pepper Snapple Group, Inc. (DPS) focused upon Americas Beverages business. 54
Post demerger the company had made a substantial growth and the group had
revenue of £5,384 million in 2008.55

With over 150 years of its presence in the confectionery market, Cadbury had
become a global company with leadership position in 20 of the world’s top 50
emerging confectionery markets. (Exhibit III). As of 2008, the company with a
market share of 10.5% ranked No. 2 in the confectionery market. With respect to the
chocolate market, Cadbury’s ranked No. 5 with a market share of 7.5% in 2008.
Cadbury’s major competitors were Mars- Wrigley56, Nestle, Hershey57 and Kraft Foods.
In 2008, Cadbury was the leader in the gum market and its brand Trident was the
largest gum brand in the world. Another factor that placed Cadbury in the leading
position was the candy business with leading candy brands such as Halls, Maynards 58
and Cadbury Eclairs59. A major advantage for Cadbury was its presence in the
emerging markets. In 2008, it was reported that emerging markets accounted for one
–third of the confectionery revenue and contributed 60% of revenue growth.60 The
company expected high growth rates in the emerging markets and had planned to
focus more on these markets.61
Exhibit III
Positions In Emerging Markets (2008)

51
Is a brand of soft drinks marketed by Dr Pepper/Seven Up, a unit of Dr Pepper Snapple
Group.
52
Is a brand of tea in the United Kingdom. It was launched in 1903 by John Sumner Jr. of
Birmingham, England.
53
“Cadbury History”, Op.cit.
54
“Demerger”, http://www.cadburyinvestors.com/cadbury_ir/shareholder_services/demerger/
55
“Cadbury Annual Report & Accounts 2008”, Op.cit.
56
Is a worldwide manufacturer of confectionery, pet food and other food products.
57
Is the largest chocolate manufacturer in North America
58
Is a candy and the Maynards brand was first developed in the UK almost 100 years ago
with the launch of the much loved Wine Gums
59
Eclairs was first discovered by a local confectionery firm in London, England in the 1960s.
The firm then became part of Cadbury in 1971 making Cadbury Eclairs the second largest
brand in the company.
60
“Cadbury Annual Report – 2008”, Op.cit.
61
Ibid.
8
Source: “Cadbury Annual Report & Accounts 2008”,
http://cadburyar2008.production.investis.com/~/media/Files/C/cadbury-ar-
2008/pdf/cadbury_ra_13mb_compressed.ashx, February 25th 2009

Cadbury with leading positions in the confectionery market and strong presence in
the emerging markets attracted Kraft Foods, which aimed to become a global player
in the confectionery market. “Kraft’s dogged pursuit of Cadbury, and justification of
the deal is driven by the companies ‘complementary geographical’ footprint, mainly
emerging markets India, Brazil and Mexico.”62 Kraft Foods had initiated the
acquisition deal in August 2009. Though the offer was rejected by the Cadbury’s
chairman, Roger Carr initially as it was underpriced, after a period of six months,
Kraft with their sweetened offer finalised the deal in January 2010 for $19.6 billion.63

Kraft Foods’ Acquisition of Cadbury: Challenges and

Opportunities
Key motivating factor for Kraft Foods acquisition of Cadbury was to expand Kraft’s
global presence and tap the emerging markets. This acquisition would also lead to
integrate world’s famous brands such as Kraft’s Oreo cookies, Velveeta cheese and
Cadbury’s chocolate bars under one roof. The acquisition was expected to help both
the companies to compete effectively against the rivals. “Renowned industry experts

62
“Kraft wins over Cadbury with $19.6 bn offer”, Op.cit.
63
Boyle Catherine, “Timeline: How Kraft won over Cadbury”,
http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article69936
82.ece?token=null&offset=0&page=1, January 19th 2010
9
also reason that a deal between Kraft and Cadbury would create a global food giant
with about $50 billion in annual revenues, and would boost Kraft’s growth prospects
by giving it access to new brands, especially in the attractive confectioneries
segment.”64

Kraft Foods – Cadbury acquisition process had started from August 2009. (Annexure
IV). Before the final acceptance of Cadbury, Kraft Foods had repeatedly approached
the UK chocolate firm both formally and informally. The initial offers were rejected
and Kraft Foods was pressurised to increase their offer value. Moreover, Cadbury’s
performance was high which had made the acquisition process tougher for Kraft
Foods. In early 2010, the world’s largest food company Nestle had acquired the pizza
business of its rival Kraft Foods for $3.7 billion. The funds from this deal had helped
Kraft Foods to increase the offer of Cadbury and thereby acquired the company.65

The Cadbury deal would turn Kraft Foods to a global powerhouse and the combined
company was expected to earn revenue of $50 billion and would also create new
distribution channels for the Kraft products. 66 Access to emerging markets was
another attracting factor. Kraft Foods expected to increase their market share in
developing economies from 20% Pre-Cadbury acquisition to 26% post acquisition.67
(Annexure V). The chairman of Kraft Foods, Irene Rosenfeld had opined that this
acquisition would leverage the company to world’s No.2 food company and No.1
Company in North America. The company had also aimed to capture the best of both
the companies and maintain business momentum.68

By acquiring Cadbury, which has got a market share of 70% in Indian chocolate
market and with 1.2 million retail outlets in 2009, Kraft would get a solid presence in
the second fastest growing economy where large sections of Indians have turned
towards processed foods including rural population. To offer products at competitive
price, Kraft would tie up with local manufacturers and sell them under the Kraft’s
brand. “Analysts had long supported Kraft’s rationale for the merger, which would
add Trident gum and Dairy Milk chocolates to Kraft’s brands and help the American
food company expand into faster-growing countries like India, South Africa and
Mexico.”69

Though Kraft – Cadbury combine would improve Kraft’s position in the chocolate
market, the competition from Nestle, the global No.1 food company, would continue
and Nestle would dominate the food and beverages market. Nestle’s brands included
Nescafe70, Perrier71, Jenny Craig72 and Haagen Dazs73 had net sales of $99billion in

64
“Acquisition by Kraft: What Does the Market Hold for Cadbury?”,
http://m2weekly.com/cover-cover/acquisition-by-kraft-what-does-the-market-hold-for-
cadbury/
65
“Nestle waits for market pressures to soften Hershey”,
http://www.ibtimes.com/articles/5543/20100126/nestle-waits-market-pressures-soften-
hershey.htm, January 26th 2010
66
“Acquisition by Kraft: What Does the Market Hold for Cadbury?”, Op.cit.
67
“Kraft Foods – Cagny Conference”, Op.cit.
68
Ibid.
69
Werdigier Julia and J. Michael, “Cold Response to Kraft’s Cadbury Bid”,
http://www.nytimes.com/2009/11/10/business/global/10kraft.html, November 9th 2009
70
Is a brand of instant coffee made by Nestlé.
10
2009. The earnings per share stood at $2.68.74 Nestle products could be catergorised
into Food and Beverages and Pharmaceuticals. Food and Beverages included
Powdered and Liquid beverages, Water, Milk Products, Ice Cream, Cooking Aids,
Confectionery and Pet Care products. In 2009, Nestle had achieved above target and
expected a higher return in 2010. Analyst had forecasted that Nestle growth would be
around 4.6% in 2010. An analyst, Patrick Hasenbohler had said “"The Company is well
positioned especially in the emerging markets as soon as economic growth
accelerates again."75 Though Nestle ranked high in the food market, Kraft – Cadbury
deal had impacted the global player. Post Kraft – Cadbury acquisition Nestle was
expected to become No.3 in the chocolate world. To retain its leading position Nestle
had plans to acquire Hershey. 76

Apart from the competition from Nestle, another challenge Kraft – Cadbury would
have to overcome intra – competition. Though Kraft’s major brands such as Toblerone
were of continental taste and Cadbury’s Diary Milk brand was of British – style, the
companies brand compete closely in Poland and Romania markets. 77 However, Anand
Ramanathan, manager, KPMG78, believed that the acquisition would be a win – win
situation for Kraft. He said that “It will use the Cadbury network to launch its dairy
products here (India), even as its presence remains secure in chocolate and
confectionery.” He further added that, “I don’t think Kraft will waste any time,
especially when rivals such as Danone have already forayed into the space in India.
Nestle is already there.”79 “Kraft may not find it very easy to capture the Indian
markets. Strong players like Britannia, Nestle, Parle, HUL, Pepsi Amul and ITC are
already ruling consumers' hearts. While Cadbury's strong distribution network and
Kraft's strong balance sheet and ability to innovate would aid its entry, how is it going
to face the heated competition is to be seen.” 80 Against this backdrop, it remained to
be seen whether Kraft Food – Cadbury deal would be successful in getting
competitive advantage in the extended geographical operations?

Annexure I
71
Is a brand of bottled mineral water made from a spring in Vergèze in the Gard département
of France.
72
Is a weight loss, weight management, and nutrition company founded by Jenny Craig and
Sidney Craig now headquartered in Carlsbad, California. The company became a part of
Nestlé Nutrition in 2006.
73
Is a brand of ice cream, established by Polish immigrants Reuben and Rose Mattus in the
Bronx, New York, in 1961.
74
“Nestle makes $9.55 billion full-year profit”, Op.cit
75
Maclnnis Laura, “Nestle outshines peers, expects stronger 2010”,
http://uk.reuters.com/articlePrint?articleId=UKLDE61I05W20100219, February 19th 2010
76
“Nestle waits for market pressures to soften Hershey”,
http://www.ibtimes.com/articles/5543/20100126/nestle-waits-market-pressures-soften-
hershey.htm, January 26th 2010
77
“Acquisition by Kraft: What Does the Market Hold for Cadbury?”, Op.cit.
78
Is one of the largest professional services firms in the world and one of the Big Four
auditors, along with PricewaterhouseCoopers (PwC), Deloitte Touche Tohmatsu (Deloitte)
and Ernst & Young (EY).
79
Pinto Susan Viveat, “Kraft products to take Cadbury route to India”, http://www.business-
standard.com/india/news/kraft-products-to-take-cadbury-route-to-india/383140/ , January
20th 2010
80
“Kraft-Cadbury deal: Does it hold promise?”,
http://business.rediff.com/report/2010/jan/29/does-kraft-cadbury-deal-hold-promise.htm,
January 29th 2010
11
 Kraft Foods: Key Events

• In 1903, James L. Kraft started a wholesale cheese business in Chicago, Illinois.

• In 1926, Kraft Cheese Company bought a stake in Australia's Fred Walker & Co,
which made vegemite yeast spread.
• In 1937, Kraft's macaroni and cheese dinner product was well received in the
U.S. market.
• In 1985, Philip Morris Cos. purchased General Foods.
• In 1989, General Foods and Kraft merged to become Kraft General Foods.
• In the 1990s, Kraft General Foods acquired Jacobs Suchard AG, the maker of
Toblerone bars, and bought confectioneries in central and Eastern Europe and
in Scandinavia.
• In 2007, Altria Group, formerly Philip Morris, completed the spin-off of Kraft.
• In 2007, Kraft appointed Irene Rosenfeld as its Chairman. Rosenfeld had
already been Chief Executive since 2006.
• In 2007, Kraft completed the acquisition of Groupe Danone SA's global biscuit
business
• Kraft's 2008 annual report said the company aimed to cut costs, reorganise its
European operations while building scale in developing markets.
• It had $41.9 billion of revenue in 2008 and employed 103,000 employees in
more than 70 countries, sold its products in more than 150 countries.
Source: “At A Glance: The History Of Kraft Foods And Cadbury”,
http://www.nasdaq.com/aspx/stock-market-news-story.aspx?
storyid=200909070636dowjonesdjonline000413&title=at-a-glance-the-history-of-
kraft-foods-and-cadbury

Annexure II
Cadbury At A Glance

Cadbury: World’s second-largest

confectionary company after Mars-
Wrigley, making brands such as Dairy
Milk chocolate and Trident gum
Founded: 1824 when John Cadbury
opened a shop in Birmingham selling
tea and cocoa
Base: Bournville, Brimingham with
production at Somerdale near Bristol
Workforce (2008): 45000 in 60
countries with 6000 jobs in UK
Revenue (2008): $8.8 billion
Operating Profit (2008): $1.0 billion
Source: “Cadbury board accepts sweetened Kraft offer”, The Hindu Business Line,
January 20th 2010

Cadbury’s Timeline Details

12
 • 1824: John Cadbury's shop was opened in Bull Street, Birmingham. As a young
Quaker, he was against alcohol and so instead sold tea, coffee, cocoa and
drinking chocolate.
• 1831: John Cadbury became a manufacturer and produced cocoa and
chocolate.
• 1854: The firm received Royal Warrant as manufacturers of chocolate and
cocoa to Queen Victoria.
• 1860s: John Cadbury retired in 1861 and the business was taken over by his
sons Richard and George. In 1866, the brothers launched a new product,
Cadbury Cocoa Essence.
• 1879: Opened a “factory in a garden”, Bournville.
• 1893: George Cadbury bought more land in Bournville and began building the
village which surrounds the factory.
• 1897: Cadbury launched its first milk chocolate bar.
• 1905: Cadbury Dairy Milk was launched.
• 1921: The firm opened its first overseas factory in Tasmania.
• 1930: Cadbury had become the 24th largest manufacturing firm in Britain. The
original 14-acre site at Bournville had increased to 81 acres. More than 100
acres was devoted to recreation, including dressing areas, rest rooms and a
concert hall featured on site. The well-being of the workforce was important to
the Cadbury family.
• 1969: The firm merged with Schweppes and became Cadbury Schweppes.
• 2008: Cadbury and Schweppes demerged, separating its confectionary and
drinks business.
Source: “Timeline: Cadbury's long history”,
http://news.bbc.co.uk/2/hi/uk_news/england/8467489.stm, January 19th 2010

Annexure III
Cadbury Product Timeline

1865 – Cadbury Cocoa Essence

1875 – Cadbury Easter Eggs
1897 – Cadbury Milk Chocolate
1905 – Cadbury Dairy Milk
1908 – Cadbury Bournville Chocolate
1915 – Cadbury Milk Tray
1920 – Cadbury Flake
1923 – Cadbury Crème Eggs
1929 – Cadbury Crunchie
1938 – Cadbury Roses
1948 – Cadbury Fudge
1968 – Cadbury Picnic
1960 – Cadbury Buttons
1970 – Cadbury Curly Wurly
1983 – Cadbury Wispa
1985 – Cadbury Boost
1987 – Cadbury Twirl
1992 – Cadbury Timeout
1996 – Cadbury Fuse
2001 – Cadbury Brunchbar, Dream & SnowFlake
Source: "History Of Cadbury”, http://www.englishteastore.com/cadbury-
history.html

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 Annexure IV
Kraft – Cadbury Deal: Timeline

• August 2009 - Irene Rosenfeld, chairman and chief executive of Kraft,

approached Cadbury chairman Roger Carr about a possible Kraft offer for the
British company.
• August 31 Mr. Carr wrote back informing that Cadbury’s board had rejected
the initial offer as too low.
• September 7 - Kraft made an informal approach to Cadbury, valuing the
company at £10.2 billion. Cadbury’s board rejected the offer almost
immediately.
• October 21 - Cadbury’s third quarter results beat expectations with a 7%
sales rise.
• November 3 - Kraft reduced its sales forecast from 3% to 2% but unveils
profits significantly ahead of analysts’ expectations.
• November 9 - Kraft launchdc hostile bid for Cadbury worth £9.8 billion.
• November 18 - Hershey and Ferrero, the confectioners, confirmed that they
were considering making a bid for Cadbury
• November 22 - Mr. Carr indicated that Hershey may be preferred by the
Cadbury board as a bidder because its values are similar
• December 4 - Kraft posted its 180-page circular explaining its bid to
shareholders
• December 14 - Cadbury launched its defence against Kraft's bid, raising
financial targets again and promising higher dividends
• January 5 - Kraft sold its frozen pizza arm to Nestle for $3.7 billion. Nestle
confirmed it will not bid for Cadbury
• January 12 - Cadbury again rejected Kraft’s offer as it announced that sales
rose 5% in 2009
• January 13-14 - Irene Rosenfeld visited UK to woo Cadbury shareholders.
There was several turn down meetings as Kraft's offer was still below 800p per
share
• January 19 - Cadbury’s board recommended a raised offer by Kraft of 840p
plus a 10p dividend for each Cadbury share, valuing the confectioner at £11.9
billion
• January 25 – Deadline for Hershey or Ferrero to make a counter bid for
Cadbury
• February 2 – Deadline for Cadbury shareholders to accept Kraft’s bid
Source: Boyle Catherine, “Timeline: How Kraft won over Cadbury”,
http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/art
icle6993682.ece?token=null&offset=0&page=1, January 19th 2010

Annexure V
Kraft Foods Growth After Acquisition

14
15
Source: “Kraft Foods – Cagny Conference”, http://phx.corporate-
ir.net/External.File?
item=UGFyZW50SUQ9MzE3ODR8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1, February 16th
2010

16